Trading on the foreign exchange is fairly easy. What is difficult, however, is to trade in the forex market and consistently churn out profits. The reason why people trade in forex is that the volatility in the market makes it possible for them to make a lot of money.
However, at the same time, it is difficult to consistently make money out of the forex market because there is too much volatility in it. Essentially, when a trader fails to take the volatility and unpredictability of the foreign exchange into account, he fails miserably.
In order to be able to take the uncertain elements of the foreign exchange into account you need to know what is controllable in the forex market and what is not. Here is a small primer that will help you gain this understanding.
What You Cannot Control On The Foreign Exchange
You cannot control anything in the market. You cannot control the way it behaves, the way forex rates move, when they move, and even the extent to which they can move.
The saving grace is that nobody can control the market and this includes all the major bigwigs of the market i.e. commercial banks, central banks, financial institutions, high value individuals, and even governments.
You must have noticed that sometimes governments try to influence the value of their currencies in the market. If you continue to observe this, in most scenarios they only manage to slow down the currency and it follows its own path up until its fundamentals level out.
The Need To Bring In Stability And Consistency
Unfortunately, you cannot sustainably make money in this kind of an environment because that will amount to gambling. What you need is to bring in your own level of control into the whole market.
As you cannot control the market, you must control how you behave in the market. By controlling your trading, you can easily evade losses and make profits on the foreign exchange. Here are things that you can control which can help you bring stability and consistency into the market.
The amount of money you put into each trade on the foreign exchange is known as your position size. Position sizing is the technique you employ to determine how much you are going to put in. There are different techniques you can use and you must choose one or more on the basis of your unique style and trading method.
Timing Of Trades
When you enter the forex market is another crucial factor in gaining a measure of control over the temperamental foreign exchange. This is something that you will perfect over time as you gain more experience in analysing the market.
How long you let your profitable trades run in the market is a crucial element as well. You need to base decisions on this on nothing else but your assessment of the market.
Contrary to the previous point is how quickly you close your losing positions. This is also related to your experience in reading foreign exchange charts and fundamentals.